Will Bitcoin Soon Replace Paper Money?

An Australian economics professor has predicted that electronic currency such as Bitcoin will replace paper cash within a decade. Others believe this prediction is unrealistic given the slow adoption of the digital currency. But, all sides agree that digital currency will have an influence on the fiat currency systems of the world.

Bitcoin, in case you have not been near any form of media for the last few years, is an alternative money system with no physical currency. The Bitcoin is government issued, but rather "mined" by computers performing a series of computations. The currency provides a level of security even beyond credit card transactions, known as "cryptocurrency."

Unfortunately, its anonymity has caused Bitcoin to take on a somewhat nefarious reputation. A number of websites and private individuals used the digital currency to transact various illegal dealings, such as selling drugs, guns, and prostitution. As a result, governments around the world famously cracked down on a number of these websites. Money laundering has been a problem, causing a spate of new legal decisions and regulations regarding how Bitcoins travel across international borders.

Despite all of the legal problems, Bitcoin has persisted, and many believe it has reached a point of cultural saturation that shall prevent it from slipping into obsolescence any time soon. And, it has cast a long shadow that world governments have had a hard time ignoring. This has led many to speculate that digital currency will soon replace physical currency.

But, do not rush out to invest your life savings in Bitcoin just yet. Most experts agree that the current cryptocurrency is not sufficiently subject to government oversight to continue indefinitely in its present form or to replace fiat currency. However, the concept of digital currency, validated by complicated digital algorithms that render it virtually impossible to counterfeit, does have appeal for many world governments.

Better yet, due to the decentralized nature of digital currencies, there is no significant upfront cost for a government to switch to digital currencies. Similarly, there is no ongoing expense to maintain the currency. Physical money requires constant printing and monitoring for worn bills and coins and counterfeits. Thus, the digital currency of the possible future is much more financially and environmentally friendly.

Still, predictions that digital currency will completely replace printed money within the decade may be a bit ambitious. Although digital currency is slowly growing in popularity, despite all of its various problems, there remains a certain psychological security in a currency held in one's hand. Moreover, fears of hacking, viruses, and other attacks on the entire financial foundation of a nation via purely digital means will likely make most nations slow to adopt such a form of currency.

But, the influence of Bitcoin is undeniable. While it may not replace physical currency entirely, it could easily lead the way for an interesting hybrid arrangement where printed currency coexists peacefully with physical currency. Only time will tell.

Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum